Balloon Loans Can Result In Huge Savings!

When the whole world is on its process of transformation, the world of mortgage loans has also joined the herd. The balloon loan is a new way to pay for your mortgage loan, which is often termed as the adjustable rate mortgage loans. The word “balloon” implies that the balance is required to be paid back at the end of the due date upon the maturity of the loan.

Balloon loans are the type of mortgage loans, which remain fixed, except it becomes 100% due after a specific time span. The loan is framed on the clause that the loan is paid back in cash, after the loan gets matured. The basic advantage of this type of loans is that you can get lower interest rates as compared to other higher interest rate mortgage loans.


Balloon loans like any other ARM loans; always attract the consumers, as they are the low interest loans. When you go in for the balloon loans, you have to obtain a new mortgage loan to replace the older one. However, refinancing can be very difficult if you are undergoing a bad credit situation or a difficult financial state.

The refinancing of the loan will also become a great problem for you whenever the interest rates of the loan increase. This makes you incompetent to apply for a new loan with traditional loans. However, with Balloon loans you can refinance the mortgage loans till 5 years.

The Process

You can invest in balloon loans in order to secure your future. It was long ago that the balloon loans were paid with the interest and not along with the principal, and the loans had to be repaid at the end of the term of 5 to 10 years. But today the calculation for the repayment of the balloon loans is done, as if the loan is going to be repaid after 30 years or so. Hence, you get the benefit of paying the lower interest rate on the balloon loans, as compared to the fixed mortgages. With balloon loans you get the flexibility to utilize the available capital during the loan period, and most of the payment is done when the term of the loan is finished.

However, there is a risk involved in it. As all the repayment is done at the end of the loan term, therefore, you are advised to refinance your mortgage loan or again convert it into the balloon loan, at the current interest rates, in order to pay back the loan amount to your creditors. The balloon loans are also available to investors, who purchase these balloon loans from the mortgage lenders. The process has helped a great deal in establishing balloon loans as a refinancing option.

Balloon loans are more popular as the alternative to leasing, in the places where the property tax is levied on leased products. Balloon loans are the right alternative for you if you are in need of a mortgage loan. Balloon loans are the kind of mortgage loans that feature low interest rates, and are also excellent finance options to meet future uncertainties.

A Brief Guide to Loan Consolidation

Taking a bigger loan from a single lender in order to pay off the balances on many small loans is called as loan consolidation. People consolidate loans for various reasons like to bunch several loans under a single loan lender, to reduce their overall interest rates, or to dig their way out of debts. Many consumers use this strategy to get rid of high interest loans such as credit card balances, consumer loans, and cash advances.

Federal loans such as FFELP (Stafford, PLUS and SLS), FISL, Perkins, Health Professional Student Loans, NSL, HEAL, Guaranteed Student Loans and Direct can be considered for consolidated loans.

Loan consolidation helps to reduce monthly payments by converting a shorter loan term to a longer term. This extension of terms can vary from 12 to 30 years, depending upon the loan amount. As the monthly installments are reduced, repaying the loan becomes easier for the borrower. It is important to note that, due to extension of loan terms, the borrower pays more interest in the long run.

Normally, the interest rates on consolidation loans are calculated on the basis on weighted average method on the consolidated loans and are rounded up to the nearest 1/8th of the percent and not more than 8.25%.

Generally, it is widely believed that a student loan can be consolidated only once, but that is not true. People can consolidate their loans as many times as they want, as long as the new consolidation loan consists of at least one unconsolidated loan. But one cannot change the interest rates on an existing consolidation loan by opting for reconsolidation, as interest rates on consolidation loans are fixed.

The borrower will have to start repaying the loan within 60 days of disbursement of the new loan. There are some significant advantages in opting for loan consolidation. Switching from multiple payments into single payment helps people to get a clear idea of their financial position. Lots of alternate repayment plans such as extended repayment, graduated repayment, and income contingent repayment are available. Facilities to lock the interest rates, including the ability to lock in the lower interest rates during the grace period are available.

There are also a few shortcomings with loan consolidations. When a borrower consolidates during the grace period, he has to start repayment immediately and loses the remaining grace period, including possible interest benefits on subsidized loans. The borrower may lose few positive loan amnesty provisions on Perkins loan, when it is included in the consolidation loan. Perkins loans incorporated in a consolidation loan are in eligible for subsidy, meaning that the federal government will not pay the interest on the loans while the student is studying.